Blue Cross plans are sitting on huge cash reserves while continuing to sock customers with hefty rate hikes, a national consumer advocacy group charges.
Blue Cross and Blue Shield of North Carolina has stockpiled a record surplus of $1.4 billion and lawmakers should force the insurer to use some of the money to help control surging premiums, Consumers Union urged in a study released Thursday. This year, the company raised rates for individual coverage an average of 12.24 percent.
The report examines the reserves of 10 nonprofit Blue Cross health plans across the country. As with other Blue plans, the reserves at this state's Blue Cross are well above industry standards, the report's authors say, and more than what's needed to protect the insurer's financial health and ensure that claims are paid.
"We need to balance the surplus levels with the large rate increases many people are seeing," said Laurie Sobel, a senior attorney with Consumers Union, the publisher of Consumer Reports magazine. "Consumers are struggling. We're asking regulators to take a hard look at this."
Chapel Hill-based Blue Cross is simply following a North Carolina law that requires health insurers to keep three to six months' worth of claims and administrative costs in reserve, said spokesman Lew Borman. The company is actually near the lower end of that range, with about 3.6 months' worth.
"Reserves are the safety net for our customers," Borman said. "It's about financial stability and providing ongoing coverage for our customers."
Blue Cross, the state's largest health insurer, pays about $11 billion in claims each year for its 3.7 million members. If there is a health emergency or epidemic, Borman said, the company will need to use its reserves to make sure customers continue receiving care.
Consumers Union contends that insurance commissioners across the country should reject rate increases "when previously accumulated surpluses are sufficient to absorb potential underwriting losses."
In North Carolina, that would require a change in state law, and lawmakers have not tried to limit insurers' reserves, N.C. Department of Insurance spokeswoman Kristin Milam said.
Rates, reserves not tied
Under state law, the DOI doesn't consider surplus levels when it reviews annual rate requests. The department does examine rates for each type of health plan an insurer offers by using patients' claims history, actuarial data and other factors to determine whether an increase is appropriate.
"Our laws do not tie rate-making to reserves or surplus," Milam said.
North Carolina law requires insurers' to keep a minimum amount in reserve, but doesn't limit the size of the reserves, she added. A few states, including Pennsylvania, have moved to control insurers' reserves.
Consumers Union's report focused on nonprofit Blue Cross plans because they're the dominant players in most states, Sobel said. And they've been passing along sharp rate hikes in recent years.
Raises up to 50%
In North Carolina, Blue Cross has raised rates for individual coverage each of the past three years. This year, some members were hit with increases as high as 50 percent based on such factors as gender, age, medical history and where they live.
The higher rates reflect the increasing use and skyrocketing cost of medical care, Borman said. Blue Cross's profit margin was 2.1 percent last year, down from 3.6 percent in 2008.
The Consumers Union report follows news that Blue Cross plans to slash administrative costs by 20 percent, or about $200 million, by 2014. The strategy is aimed at improving financial results amid changes spurred by health reform, and at keeping premiums down.
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